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The latest annual reviews of tariffs on off-the-road tires from China have resulted in changes to how much tire makers and importers will pay on the tires they import into the U.S.

In the anti-dumping investigation for the period September 2014-August 2015, the Department of Commerce (DOC) says the rate for Xuzhou Xugong Tyres Co. Ltd., (also known as Armour Rubber Co. Ltd. or Xuzhou Hanbang Tyre Co. Ltd.) should be 33.08% — that’s nearly half of what the company was assessed after the previous year’s review; then it was 65.33%.

And because Xugong was one of the primary companies the DOC investigated (the agency calls them a ‘mandatory respondent’), the drop in its rate lowers the rate of these nine other companies to the same 33.08%:

One thing that hasn’t changed is that the bulk of companies who were assessed the country-wide rate will continue to pay 105.31%.

Subsidy rates go up

As for the countervailing investigation — which covers subsidies from a foreign government that a company receives — the latest review is prompting substantial rate increases.

For Guizhou Tyre Co. Ltd., the rate is increasing from 2.52% to 34.46%. For companies not selected for an individual review the new rate of 40.24% is almost eight-times higher than the previous 5.65%.

The good news for these companies is that their rates could have been even higher. When the DOC published preliminary countervailing rates in October 2016, Guizhou’s rate was to be 38.19%, and the “others” category rate was to be 54.20%. (It’s not uncommon for the DOC to make revisions after companies provide additional data for consideration.)

Why a review?

Companies who are assessed tariffs have the right to request a review of the data once a year. The government publishes a notice in the Federal Register each month of the investigations that had been finalized in that same month in previous years, and companies have a certain amount of time to request an administrative review. Sometimes no one makes a request. In the case of the anti-dumping investigation on OTR tires from China, the 2016 review was the seventh review.

Tariffs on OTR tires from China were imposed beginning in 2008, and they were renewed in 2013. Tariffs are imposed on five-year cycles, and the next mandatory review of these tariffs is in 2018.

Titan responds

After the higher subsidy rates were published in the Federal Register this week, Titan International Inc. released a statement which included messages from Chairman Morry Taylor and CEO and President Paul Reitz.

Taylor says, “We thank the government agencies involved for their diligence in pursuing these reviews. These results confirm that imports of OTR tires from China continue to be subsidized and dumped and harm U.S. producers of OTR tires in the U.S. marketplace. I believe Titan will see a positive impact in our aftermarket business as a result of these determinations.On behalf of our shareholders and workers, we are pleased that the U.S. government’s investigations have confirmed what we are seeing in the U.S. marketplace.”

Reitz says, “These results confirm our belief that the levels of government subsidization had significantly increased and that the amount of dumping has continued. The continued monitoring by the DOC of these orders and the imposition of accurate amounts of countervailing and antidumping duties is an important step in restoring conditions of fair trade. We will continue to work with the DOC to insure that any and all subsidization and dumping by Chinese producers is met by appropriate duty levels. We have been fighting and will continue to fight against the unfair trade practices of any U.S. trading partners.”

It all comes down to supply and demand. Well, at least those are a couple factors the International Trade Commission considered when it decided not to impose tariffs on truck and bus tires imported from China.

The following three “conditions of competition” informed the commission’s analysis of whether there’s material injury, or threat of material injury, by the imported products. The quoted material below comes directly from the commission’s final report, and provides a glimipse of how the commission made its decision to keep Chinese truck tires tariff-free.

Demand conditions: Truck and bus tires are sold for two markets — original equipment manufacturers and as replacements in the aftermarket. “Demand for truck and bus tires in the OEM sector is driven by U.S. heavy truck sales, which increased between 2013 and 2015 and then declined in interim 2016. Demand for truck and bus tires in the aftermarket sector is driven by truck tonnage, which increased steadily throughout the period of investigation.” The commission said sales of both domestic-made tires and imports from countries outside of China ”were made predominantly in the aftermarket.”

U.S. producers reported an increase in demand, while importers said it was a mix of either increased or fluctuating demand. “U.S. purchasers were evenly divided between no change and decreased demand, and no purchasers reported either demand increases or fluctuations.”

Using data from questionnaires in the investigation, as well as U.S. import statistics, the commission determined the apparent U.S. consumption of truck and bus tires increased from 21.9 million tires in 2013, to 25.3 million tires in 2014, to 26.5 million tires in 2015.

Supply conditions: The domestic industry had the largest share of the U.S. market during the period of investigation, but its share “steadily declined.” Since 2013 the domestic industry’s share has dropped from 53.3% to 48% in 2014 to 45.6% in 2015. (In 2015 the four largest domestic producers of truck and bus tires were Bridgestone, Goodyear, Continental and Michelin.)

Chinese truck and bus tires were the second largest source of supply for the U.S. market during the period of investigation. Market share for Chinese tires grew from 28.7% in 2013 to 33.2% and 33.6% in the next two years.

Imports from countries other than China grew from 18% market share in 2013 to 18.7% in 2014 and 20.8% in 2015. Canada, Japan and Thailand were the largest sources of imported tires from this group.

Substitutability and other conditions: The commission found a moderate to high degree of substitutability between the domestic and imported products. Most producers, importers and purchasers agreed on that point.

Purchasers cited quality, price and availability as their key factors before buying truck and bus tires. A majority of purchasers (11 out of 20 surveyed) indicated they only sometimes purchase the lowest priced product.

Here’s one disconnect: 34 of 39 importers, and 13 of 20 purchasers said branding influences the price that customers are willing to pay for truck and bus tires. Only two of six producers indicated the same thing.

The vast majority of importers and purchasers agreed that the U.S. truck and bus tire market is divided into tiers, and most agreed there were three major tiers representing varying levels of quality, service and price.

Domestic producers said the largest share of their 2015 sales were concentrated in the top tier, while importers said the majority of imported tires from China were in the third tier, with a much smaller amount falling in Tier 2, and “very few” in the top tier.

Importers agreed that tires imported into the U.S. from countries other than China were present in roughly comparable levels in all three tiers.

“While there is some competition across tiers, purchasers seeking superior product features are generally willing to pay higher prices in order to obtain tires in higher tiers because they identify superior product features in the higher tier tires.

“In addition, certain purchasers focus in their purchase decision on certain product feature requirements such as retreadability, warranties and service time. As a result, these purchasers sometimes will only consider purchasing tires that can satisfy their particular requirements from within the top tier, in which there was substantial domestic production and very few subject imports, and do not consider purchasing tires from lower tiers, where subject imports are concentrated.”

No tariffs will be assessed on truck and bus tires manufactured in China and imported into the U.S. The International Trade Commission (ITC) has upended the tariff investigation by voting today against imposing tariffs on these products.
The ITC doesn’t immediately publish an explanation of its vote, but instead issues a single sentence that it has “made a negative determination.”

The result is that the tariff investigation on truck and bus tires from China is over, and no tariffs will be assessed.

The vote

After it’s initial one-sentence announcement this morning, the ITC has provided one more detail on its decision. The five-member commission voted 2-3.

Commissioners Rhonda Schmidtlein and Irving Williamson voted in the affirmative (which was a vote to impose the tariffs,) and commissioners David Johanson, Meredith Broadbent and F. Scott Kieff voted in the negative.

A sixth member of the commission, Dean Pinkert, did not participate in the case. Pinkert also recused himself from the separate investigation studying tariffs on off-the-road tires earlier this year.

The report

Weeks after an ITC vote, the commission provides insight into its decision. That report will be available by March 15, 2017, here.

The U.S. Department of Commerce (DOC) has more than doubled some of the tariff rates it says are necessary to offset the subsidies and dumping of Chinese-made truck and bus tires imported into the U.S.
The DOC conducts its tariff investigations in two stages. Evidence during the preliminary stage resulted in preliminary subsidy rates ranging from 17.06% to 23.38%; but in the final investigation those rates jumped to 38.61% to 65.46%.

And that’s just half of the equation.

The preliminary anti-dumping tariff, after a re-calculation, was set at 30.36% for all tire manufacturers. In the final stage that rate has actually decreased, and is either 9% or 22.57%, depending on the manufacturer.

The DOC is one half of the tariff-decision making team. The International Trade Commission (ITC) conducts its own investigation of every tariff petition — this one was filed by the United Steelworkers — and the ITC is scheduled to make its final determinations March 6, 2017.

If the ITC agrees with the DOC that the domestic truck and bus tire market is being injured by like products made in China, the DOC will formally instruct the U.S. Customs and Border Protection to collect tariffs on the imported products. If the ITC doesn’t see it the same way and says the U.S. production market isn’t being harmed by those imports, the investigations are terminated and no tariffs are collected.

Another wrinkle

Typically, the DOC sets these tariff rates, publishes the rates in the Federal Register, and once published, the customs office begins collecting the tariffs. But as sometimes happens when these cases, by the time the final rates are set, the clock has expired on the provisional preliminary decision. That’s what happened with the anti-dumping rates in this case. As a result, for the time being, no dumping tariff will be collected until the ITC makes its final determination in March, and that determination says truck and bus tires from China are being dumped in the U.S.

The higher subsidy rates will be collected like usual, however — as soon as they’re published in the Federal Register.

The U.S. Department of Commerce (DOC) has admitted to a miscalculation in its preliminary anti-dumping tariff rate for truck and bus tires imported from China. As a result, the rates for every manufacturer and importer are increasing to 30.36%, which is nearly 10 points higher than the initial calculation.
The DOC has recalculated its preliminary anti-dumping tariff rate to account for two errors that affected the initial figure.

The change stems from two fine details that were used to establish the rate for Prinx Chengshan (Shandong) Tire Co. Ltd. One is related to using a per-kilogram basis instead of a per-piece basis in the calculation; another refers to not using a weight average when reconstructing control numbers.
The result is what the DOC calls a significant ministerial error, which it defines as a mathematical or clerical error that “would result in a change of at least five absolute percentage points, but not less than 25% of the weighted average dumping margin.”

As it relates to this anti-dumping tariff, the recalculated rate for Prinx Chengshan is 30.36%, up from 20.87%.

Keep in mind, the anti-dumping rate is only half of the tariff equation.

There are two ongoing investigations related to truck and bus tires from China, and the two rates are combined and levied on all shipments. These anti-dumping tariffs are added to the countervailing tariffs, which are imposed to account for subsidies the companies are receiving from the Chinese government. The countervailing tariffs vary slightly by producer: 17.06% for Double Coin Holdings Ltd.; 23.38% for Guizhou Tyre Co Ltd.; and 20.22% for all other importers.

But the net effect is that most truck and bus tires from China will be assessed a 50.58% tariff.
(Double Coin’s combined rate is 47.42% and Guizhou Tyre’s combined rate is 53.74%.)

These figures represent the preliminary phase of both tariff investigations. The DOC continues to investigate and is scheduled to make its final ruling Nov. 9, and the International Trade Commission is scheduled to hold a final hearing on the investigation Jan. 24, 2017.

The United Steelworkers (USW) union is praising the U.S. Department of Commerce’s (DOC) preliminary anti-dumping (AD) determination of tariffs of at least 20% on truck and bus tire imports from China.

The DOC issued its preliminary determination on Aug. 29. Importers will need to start posting cash deposits or bonds to offset dumping by Chinese tire producers at margins ranging from 20.87% to 22.57%. Preliminary countervailing duty margins were announced June 28 with margins of 17.06 to 23.38%.

When combined, the AD and CVD margins are nearly 40% on the truck and bus tire imports from China. The final USDOC rulings are expected in January 2017 with a final U.S. International Trade Commission (USITC) determination next March.

The USW filed the initial petition on Jan. 29, 2016, that began the trade investigation.

In a statement issued by the USW, Leo Gerard, international president, said: “The government investigators and our trade counsel have been diligent in handling this massive trade case involving more than $1 billion value of truck and bus tire imports from China in 2015, increasing market share each of the last three years at the expense of American producers and USW tire production workers.”

He added, “Unfair truck tire imports from China have denied our domestic industry the opportunity to share in job increases during a period of robust demand growth.”

The chair of the union’s national rubber tire bargaining conference, USW International Secretary-Treasurer Stan Johnson, said: “Again and again China has been shown to benefit from massive subsidies and to engage in widespread dumping in order to gain market share at the expense of American jobs. Chinese truck tire imports have grown from 6.3 million in 2012 to 8.9 million in 2015 with an increased share of consumption of more than 36% by 2014.”

The USW represents 6,000 workers at five facilities in the U.S. that account for more than two-thirds of domestic capacity to produce truck and bus tires. The tire production facilities are operated by Bridgestone-Firestone, Goodyear and Sumitomo, and they are located in LaVergne and Warren County, Tenn., Buffalo, N.Y., Danville, Va., and Topeka, Kan.

The U.S. Department of Commerce (DOC) says truck and bus tire manufacturers in China are dumping tires in the U.S. at less than fair market value, and those tires should be subject to tariffs of at least 20%. The tariffs are retroactive.

Chinese truck and bus tires are benefitting from government subsidies and dumping in the U.S., the DOC has found in its preliminary investigations. The DOC’s final ruling is expected Jan. 17, 2017.
The DOC announced its preliminary results Aug. 29, 2016.
In every tariff investigation, the DOC selects manufacturers to serve as mandatory respondents. Those companies then provide data and answer questions, and those figures and answers serve as the basis and gauge for the industry as a whole. Other manufacturers also may volunteer to provide their own data throughout the investigation as well.

Tire manufacturer Rate
Prinx Chengshan 20.87%
Non-selected separate rate respondents 20.87%
Rate for all other manufacturers in China 22.57%
Commerce preliminarily found Double Coin “is not eligible for a separate rate and is part of the China-wide entity.”

The higher rate for the other manufacturers in China is “due to their failure to respond to Commerce’s requests for information.”

The DOC says there was evidence that truck and bus tires were dumped in the U.S. soon after the United Steelworkers sought the investigation in January, and as a result the U.S. Customs and Border Protection will be instructed to retroactively impose the tariffs on products. The effective date will be 90 days prior to the forthcoming publication of this preliminary determination in the Federal Register. (It usually takes about a week for the Federal Register notice to be published, so the tariff retroactive date likely will be around June 7.)

These anti-dumping tariffs are on top of the countervailing tariffs the DOC preliminarily approved in June. Adding the two tariffs together determines the full penalty. For Double Coin, for example, it’s 39.63%. Review the countervailing tariff details here.

For most manufacturers, the combined rate will be above 40%.
The DOC cites U.S. Census Bureau data and says 8.9 million truck and bus tires were imported into the U.S. from China in 2015. Those tires are valued at more than $1 billion.

That brings us to the recent decision by the Department of Commerce (DOC) covering OTR tires imported from India. Indian manufacturers will not be forced to pay anti-dumping tariffs on the tires. Why? Because the DOC determined off-the-road tire makers in India have not sold products in the U.S. at less-than-fair-market prices.

I am pleasantly surprised by the decision. Too often, the decision to implement tariffs on imports, particularly from China, seems to be politically motivated. The DOC finding has renewed my faith in the system.

Hats off also go to ATC Tires Private Ltd. (a part of Alliance Tire Group) and Balkrishna Industries Ltd. The DOC says it based its review on data provided by the two Indian tire manufacturers.

The preliminary decision (more on that shortly) follows the DOC’s earlier preliminary decision to implement countervailing tariffs on OTR tires imported from India. In that case, the DOC said tire manufacturers from India and Sri Lanka were benefiting from subsidies. The tariffs range from 2.9% to 7.64%.

The final determination on the anti-dumping ruling is scheduled to be announced on Jan. 4, 2017 (for the countervailing ruling it is Oct. 28, 2016), and it could change. The DOC will continue to collect evidence in the interim.

But the DOC knows Alliance and BKT are not dumping their OTR tires into the U.S. market, and that should rule the day.

Data provided to the International Trade Commission (ITC) shows imported truck and bus tires from China undersold domestic like products in 55 of 56 quarterly comparisons.

At the same time, the ITC says the underselling didn’t force a drop in U.S. tire prices.

Two members of the ITC said they didn’t see evidence of injury to the domestic truck tire market, and instead noted “the domestic industry’s performance improved.”
The disconnect in prices is revealed in a 154-page explanation of the ITC’s vote on March 11 to continue its preliminary investigation of imported truck and bus tires from China. The U.S. Department of Commerce is now conducting its own investigation of whether imported tires from China should be subject to countervailing and anti-dumping tariffs.
Four domestic truck tire producers — Bridgestone Americas Tire Operations LLC, Continental Tire the Americas LLC, Goodyear Tire & Rubber Co., and Michelin North America Inc. — and 21 importers provided pricing data for four products.

“The data show that subject imports undersold the domestic like product in 55 of 56 quarterly comparisons. Virtually all of the subject imported tires for which prices were reported undersold domestic industry prices.

“The data also indicate that the underselling margins of subject imports were high, ranging from 13.7% to 67%, and that these underselling margins increased steadily over the course of the period of investigation. This underselling enabled subject imports to gain market share at the expense of the domestic industry during the period of investigation. We find this underselling to be significant for purposes of our preliminary determinations.”

But in the next paragraph, the ITC says the prices of those imported tires didn’t depress the prices of U.S. products “to a significant degree.”

The manufacturers and importers compared prices on tires in these sizes.

11R22.5, 16 ply rating, load range H, speed rating L

11R24.5, 16 ply rating, load range H, speed rating L

295/75R22.5, 14 ply rating, load range G, speed rating L

285/75R24.5, 14 ply rating, load range G, speed rating L

“The pricing data indicate that both prices for the domestic like product and subject imports declined over the period of investigation. From 2013 to 2015, declines in prices for the domestic like product of the four pricing products ranged from 10.9% to 13.5% for aftermarket sales, and from 8.2% to 12.3% for OE sales.

The commission notes that the price drops coincided with a drop in raw material prices, and at this point, the ITC isn’t able to determine whether the domestic price declines are due to imports, or other factors. The ITC says it will seek additional information in the next stage of the investigation regarding the factors that contributed to the price declines.

At the same time, the ITC said it couldn’t determine that imported truck and bus tires prevented domestic tire manufacturers from increasing prices.

“The domestic industry’s unit costs declined, as did its ratio of cost of goods sold to net sales. Thus, the domestic industry did not have an incentive to raise its prices due to increasing costs. Further, even though apparent consumption increased, the record in these preliminary investigations does not show any unsuccessful attempts by the domestic industry to raise its prices.”

A dissenting view

Two ITC members saw no indication that the U.S. tire industry was being harmed or threatened by truck and bus tires imported from China, but they were in the minority. Still, Commissioners Meredith Broadbent and Scott Kieff presented their dissenting views.

They based their dissenting votes on four factors, two of which come down to dollars and cents: “the lack of significant price-depressing or suppressing effects, and the high and increasing profitability of the domestic industry throughout the period of investigation.”

As to the latter, the commissioners wrote, “The domestic industry’s performance improved in almost every category for which information was collected over the period of investigation.”

Capacity utilization increased, from 83.8% in 2013 to 93.5% in 2015. Domestic and export shipments in 2015 were higher than two years earlier, and net sales were higher, too. The number of production workers, their hours worked and their wages paid, all rose.

And, “the domestic industry’s financial performance improved in every metric.” The industry “had high and rising profits” throughout the period of investigation.

“Not only did the industry show consistent and significant improvement in almost every metric, it did so as subject import volume was increasing. The industry’s highest levels of production, capacity utilization, employment, and profits occurred in 2015, as subject import volume and market share peaked.” — Joy Kopcha

Some of the largest independent tire dealers in the country visited the Specialty Equipment Market Association (SEMA) Show in Las Vegas Nov. 3-6.

I had a chance to talk with many of them about pricing. I also broached the subject with a number of smaller dealers – remember, some 60% of all independent tire dealers own a single outlet, making them the bread-and-butter of our industry.

I also talked with manufacturers and exhibitors as I walked from booth to booth and checked out what was going on.

Here’s what they had to say about pricing. I guess what happens in Vegas doesn’t always stay in Vegas.

Four years after the last tariffs on consumer tire imports from China went into effect, tire prices had risen 28.4%. That is an average price, but once low-cost radial pricing increases, the “better” and “best” tires (and “good” if you consider low-cost imports to be its own category below “good”) tend to follow suit. Is this good for the consumer? Of course not.

The tariffs this time around are much higher. Good for the consumer? The answer is no. And yes. And moot. Most of the dealers told me they had noticed no change in the prices. No change! And some said the price of low-cost imports had decreased – one dealer said by as much as 30%! How can that be? They offered up a number of factors.

1. Low raw material costs.

2. Subsidizing by the Chinese government.

3. Deals by many of the smaller Chinese manufacturers looking for cash flow.

4. Greater supply than demand.

Two of the four — Nos. 1 and 4 — could change, which would likely lead to an increase in pricing. But those factors, especially No. 4, tend to be ruled by free trade and are unrelated to the tariffs. Nos. 2 and 3 are more artificial, and if they continue, pricing could be held down indefinitely.

(A few of the dealers said pricing had risen, but they were in the minority.)

Here is what I think will happen. China already has twice devalued its yuan because of its slumping economy, and I think it will keep subsidies in play, which will keep the low-cost radial tire plants in China in operation for the time being. Consider the tires in some ways a loss-leader for China.

As for the “deals,” some of which were offered at the show — 205/55R16s for $18 apiece?! — they will only hold off the proverbial creditor for so long. My guess is many of the companies with smaller, older factories will be weeded out over time.

Eventually, only the stronger Chinese tire manufacturers that have state-of-the-art plants and try to make money without dumping tires will survive. Their pricing is comparatively higher in the U.S. anyway, which is why I was surprised they were saddled with such exorbitant tariffs.